Viscount Caldecote: I understand what my noble friend says. As he says, it is a fine balance. My view is that the balance is tipped too far in the direction of an experienced property owner but, as he says, it is a fine distinction. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 248J to 250 had been withdrawn from the Marshalled List.]

Clause 85 agreed to.

Lord Lucas moved Amendment No. 251:

After Clause 85, insert the following new clause--

Part I of the Landlord and Tenant Act 1987: procedural changes

(".--(1) In section 5 of the Landlord and Tenant Act 1987, after subsection (2) insert--
"(2A) Where a landlord has, in accordance with this section, served an offer notice on the qualifying tenants of the constituent flats, he shall not during--
(a) the period specified in the offer notice under subsection (2)(c), or
(b) such longer period beginning with the date of service of that notice as may be agreed between him and the requisite majority of such tenants,

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dispose of the protected interest except to a person or persons nominated for the purposes of section 6 by the requisite majority of such tenants."
(2) In section 6 of that Act (acceptance of landlord's offer)--
(a) for subsection (2) substitute--
"(2) In this section "the relevant period" means--
(a) the period beginning with the date of service of the acceptance notice and ending with the end of the period specified in the offer notice under section 5(2)(d), or
(b) such longer period beginning with that date as may be agreed between the landlord and the requisite majority of qualifying tenants of constituent flats."; and.
(b) in subsection (3), for "the period so specified" substitute "the relevant period".
(3) For sections 7 and 8 of that Act substitute--
"Rejection of landlord's offer.
7. Where--
(a) a landlord has, in accordance with section 5, served an offer notice on the qualifying tenants of the constituent flats, and
(b) an acceptance notice is not served on the landlord by the requisite majority of qualifying tenants of the constituent flats within--
(i) the period specified in the offer notice under section 5(2)(c), or
(ii) such longer period beginning with the date of service of that notice as may be agreed between the landlord and that majority of such tenants,
the landlord may, during the period of 12 months beginning with the end of that period, dispose of the protected interest to such person as he thinks fit, but subject to the restrictions mentioned in section 6(3)(a) and (b).
Landlord's response to notice of nomination.
8.--(1) This section applies where--
(a) section 6(1) applies to a landlord, and
(b) any person has been nominated for the purposes of section 6 by the requisite majority of qualifying tenants of the constituent flats within the period specified by the landlord in his offer notice under section 5(2)(d).
(2) The landlord shall, within the period of one month beginning with the date of service of notice of the nomination, either--
(a) serve notice on the nominated person indicating an intention no longer to proceed with the disposal of the protected interest, or
(b) send to that person the requisite contract, that is to say, a form of contract for the acquisition of that interest which includes the principal terms particulars of which were contained in the landlord's offer notice under section 5(2)(a).
(3) If the landlord--
(a) serves notice in pursuance of paragraph (a) of subsection (2), or
(b) fails to send the requisite contract to the nominated person within the period specified in that subsection,
sections 6(8) and 9(4) to (6) shall apply as if the notice were served in pursuance of section 9(4) or, as the case may require, a notice in pursuance of section 9(4) were served at the end of that period.
(4) If the landlord sends the requisite contract to the nominated person within the period specified in subsection (2), that person shall, within the period of two months beginning with the date on which it is sent or such longer period beginning with that date as may be agreed between the landlord and that person, either--
(a) serve notice on the landlord indicating an intention no longer to proceed with the acquisition of the protected interest, or

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(b) offer an exchange of contracts, that is to say, sign the contract and send it to the landlord, together with his remittance for the requisite deposit;
and in this subsection "the requisite deposit" means a deposit of an amount determined by or under the contract or an amount equal to 10 per cent of the consideration, whichever is the less.
(5) If the nominated person--
(a) serves notice in pursuance of paragraph (a) of subsection (4), or
(b) fails to offer an exchange of contracts within the period specified in that subsection,
sections 6(8) and 9(1), (5) and (6) shall apply as if the notice were served in pursuance of section 9(1) or, as the case may require, a notice in pursuance of section 9(1) were served at the end of that period.
(6) If--
(a) the nominated person offers an exchange of contracts within the period specified in subsection (4), but
(b) the landlord fails to complete the exchange within the period of 7 days of beginning with the day on which he received that person's contract,
sections 6(8) and 9(4) to (6) shall apply as if a notice in pursuance of section 9(4) were served at the end of that period.
(7) Except in a case falling within subsection (5) or section 9(1) or 10, the landlord shall not dispose of the protected interest except to the nominated person.
(8) Nothing in subsection (7) shall be taken as prejudicing the application of this Part in any case where, in accordance with the provisions of section 5, the landlord serves a subsequent offer notice on the qualifying tenants of the constituent flats.
(9) Nothing in this section applies where a binding contract for the disposal of the protected interest has been entered into by the landlord and the nominated person."
(4) In consequence of subsection (3)--
(a) in section 6(9) of that Act (acceptance of landlord's offer), in the definition of "the protected interest", omit "(subject to section 9(9))";
(b) in subsection (1)(a) of section 9 of that Act (withdrawal of either party from transaction), omit "by virtue of any provision of sections 6 to 8";
(c) in subsection (1)(b) of that section, omit the words in parentheses;
(d) in subsection (9) of that section, omit the definition of "the protected interest";
(e) in section 10 of that Act (lapse of landlord's offer), for subsection (4) substitute--
"(4) Where--
(a) in the case of a landlord to whom section 6(7) applies--
(i) the landlord has discharged any duty imposed on him by that provision, and
(ii) any such consent as is there mentioned has been withheld, and
(iii) no such declaration as is there mentioned has been made, and
(b) the landlord serves a notice on the nominated person stating that paragraph (a) above applies,
the landlord may, during the period of 12 months beginning with the date of service of the notice, dispose of the protected interest to such person as he thinks fit, but subject to the restrictions mentioned in section 9(2).";
(f) in section 11(1)(b) (duty of new landlord to furnish particulars etc.), for "sections 6 to 10" substitute "sections 5 to 10"; and
(g) in section 20(1) (construction of Part I etc.), in the definition of "the protected interest", omit "(subject to section 9(9))".").

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The noble Lord said: In moving this amendment, I shall speak also to Amendments Nos. 252, 253, 254, 275 and 277. These are extensive and important amendments and I make no apology for the fact that I shall take some time to describe them. I do that to enable noble Lords who do not wish to stay too late this evening to be able to read a full description of our intention in Hansard with a view to returning to us with critical eyes on Report.

These amendments concern the right of first refusal, which is set out in Part I of the Landlord and Tenant Act 1987. Some of these amendments have been drafted to fulfil commitments given in another place, and others have been inspired by responses to the Department of the Environment's consultation exercise.

It may help the Committee if I describe the right of first refusal and how our proposals to curb abuses of this right fit into the rest of Chapter I of Part III. The right of first refusal requires that a landlord wishing to sell his interest in a block of flats must first offer it to the qualifying tenants, which includes both leaseholders and regulated tenants. If he fails to do this, the tenants have a right to buy that interest from the purchaser at the price he paid. I should clarify here that the relevant interest is the one immediately superior to that of the residents of the flats: this will often be the freehold, but is sometimes a headlease.

The Committee may recall that Part I of the 1987 Act arose from the work of the Nugee Committee, which reported in 1985. Although it constrained the previous rights of landlords to sell freely, the principle was accepted in many quarters: the British Property Federation, for example, had already given guidance to its members suggesting that they should offer the residents first refusal when disposing of blocks of flats.

The assumption was, no doubt, that as the price was the same, the freeholder would be as happy to sell to the tenants as to a third party. In the Act's passage through Parliament, no one suggested that landlords might not fulfil their obligations: the right to buy from the purchaser was perhaps thought to be a sufficient safeguard. In this context, penalties for failing to offer the right might be considered superfluous.

The Committee will have noted that the Government have withdrawn Amendments Nos. 249 and 250. The reason is that we need to give further thought to how they are drafted. Clause 85 of the Bill creates a criminal offence if a landlord makes a relevant disposal without first having served notices on the qualifying tenants under Section 5 of the Landlord and Tenant Act 1987 offering them his interest in their blocks of flats.

Amendment No. 249 defines the moment when the offence introduced by Clause 85 is crystallised as exchange of contracts. The drafting of that amendment also implied that a relevant disposal itself took place on the conveyance of the landlord's interest. The 1987 Act itself does not define at which stage in the transfer of a property the relevant disposal is made: but the introduction of the criminal offence makes it essential that we do so now, at least for the purposes of determining when the offence is committed.

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The Department of the Environment will be considering whether to define a relevant disposal as exchange of contracts (when equity is transferred) or conveyance (when the legal interest is transferred). We should be grateful for views on that point should any spring immediately to the minds of Members of the Committee. If not, noble Lords may care to write to us. We shall return to the matter on Report.

I turn now to Amendment No. 251 which makes changes to the procedures to be followed once the right of first refusal process has been set in motion. Subsection (1) closes a loophole which might become attractive to unscrupulous landlords once failure to serve notices becomes a criminal offence. Without that provision a landlord could serve the notices required to offer the right, thus staying within the law, but frustrate the Act by selling to his preferred purchaser before the tenants have had a chance to reply.

Subsection (2) is consequential to subsection (3) and also allows the "relevant period" between the service of the tenants' acceptance notice and the end of the time allowed for the tenants to nominate a purchaser to be extended by agreement. Subsection (3) itself introduces new procedures to be followed after the service of notices by the landlord. New Sections 7 and 8 are substituted into the 1987 Act by Amendment No. 251. The existing Sections 7 and 8 provide for the tenants to reject the landlord's offer and make a counter-offer, and for the landlord to make a fresh offer and conduct further negotiations. That procedure in the 1987 Act appears reasonable but is a trap for tenants.

The nature of the trap is that even if the tenants make a counter-offer, their landlord can treat the rejection of his original offer as final and may then sell his interest elsewhere, although on no better terms than were offered to the tenants. Our new procedure in new Sections 7 and 8, as set out in Amendment No. 251, works on the principle of advance or withdraw. Once the tenants have nominated their purchaser, the procedures in new Section 8 require contracts to be offered and exchanged, any deposit to be paid, and the transaction completed, within certain time limits. If the parties wish to negotiate, the time limits can be extended by agreement. The alternative is for the party whose turn it is to respond to withdraw. If either the landlord or the tenants' nominee withdraws, that party is liable for certain of the costs incurred by the other. The costs incurred are those which have accrued subsequent to the date which is four weeks after the tenants have nominated their purchaser.

The system to be introduced by Amendment No. 251 eliminates, in consequence, other provisions in the 1987 Act which allow the process to lapse without requiring the parties to enter into a contract. The misuse of Section 10(4)(b), for example, has been a source of great frustration for tenants. A landlord can engineer the lapse of the process by failing to enter into a binding contract within three months of the end of the period for nominating a purchaser. I therefore believe that the new procedures set out in Amendment No. 251 will both simplify the process of the right of first refusal and bring certainty to the outcome.

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I turn now to deal with Amendment No. 252. Members of the Committee will be aware that if the landlord sells his interest without first offering to the tenants, the tenants have a right to buy from the new landlord at the price he paid, using the provisions in Sections 11 to 17 of the 1987 Act. Amendment No. 252 will assist tenants by extending the time limits which apply when they wish to exercise their right to buy from a new landlord or respond to notices served by a prospective new landlord under Section 18 of the 1987 Act.

There is a statutory requirement under Section 3 of the Landlord and Tenant Act 1985 for any new landlord to inform his tenants that the vendor's interest has been assigned to him. At present, Section 11 of the 1987 Act says that after the service of a Section 3 notice, or some other notice if Section 3 does not apply, the tenants have either two months to ask the new landlord for information about the terms of the disposal or three months to serve a purchase notice on the new landlord.

Under our new proposals, which are set out in Clause 86, the new landlord must also serve a notice under new Section 3A of the Landlord and Tenant Act 1985 on all qualifying tenants if the sale was within the scope of the 1987 Act. The time limits for serving a Section 3A notice are the same as for serving a Section 3 notice; in practice, we would expect them to be served simultaneously. It is already an offence to fail to serve a Section 3 notice, and it will also be an offence to fail to serve a Section 3A notice.

The Section 3A notice must say that the disposal was one to which the 1987 Act applied; that the tenant may have rights to obtain information and to acquire the new landlord's interest; and that the time limits for action start once a requisite majority of tenants have received the notice. And it must say what those time limits are.

Amendment No. 252 doubles the limits to four months for the tenants to serve notice and six months for the tenants to serve a notice of purchase on the new landlord. The clock will now start running from the service of a Section 3A notice which, as I said, will set out the tenants' rights. We believe that it is entirely reasonable to give tenants extra time to exercise their rights.

I should remind Members of the Committee that the new landlord has only obtained the property because the sale to him was in contravention of the principal provisions of Part I of the 1987 Act. We do not think that he is therefore in a position to complain if we give the tenants further rights against him.

The Committee will be aware of the problem that arose when the Henry Smith charity sold properties to the Wellcome Foundation. We hope that Amendment No. 252 will curtail the abuses that followed on that occasion. Amendment No. 254 is consequential to Amendment No. 252. Amendment No. 253 applies the right of first refusal in three special cases. These are disposals by auction, disposals for non-monetary consideration, and disposals in pursuance of options or rights of pre-emption. These have all been the subject of abuse and I hope that the Committee will agree, on

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studying the wording of this amendment, which I think is fairly self-explanatory, that we have dealt with these three cases in a reasonable way.

As regards the remaining amendments in this group, Amendment No. 275 makes consequential changes in Schedule 16. Amendment No. 277 changes the commencement because we will require transitional provisions which will be more conveniently made by order. This package amounts to a considerable strengthening of the right of first refusal. We have taken account of the experience of those who have been used to the existing legislation. Where there appear to have been gaps in the earlier scheme, we have brought forward changes. I hope that the clarification and tightening-up will be helpful to both landlords and tenants. It will be more difficult for landlords to ignore their obligations, and more difficult for them to defeat a tenant's bid by finding a loophole. I beg to move.